18% ROI the Hard Way

The toughest double-digit return I've ever made

Nov 20, 2025

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Last month we sold one the apartment buildings within our fund for a double digit profit.

We invested nearly six-figures in renovations and updates, and took the building from 70% vacant to 100% occupied.

In the end, we walked away with an 18% return on our capital.

Objectively speaking, it was a win.

But knowing what we should have made on the deal, it kinda felt like a loss.

(Not only that, but I’m convinced I picked a few extra gray hairs along the way.)

As I look back at the game footage like a head coach after a matchup against our biggest rival, there’s four distinct moments - or plays if we’re running with the sports analogy - that changed the trajectory of our exit.

Three of which were completely out of our control, and one of which is a mistake that I’ve since vowed to never make again.

Here’s what happened . . .

We Got Hit With an EF-3 Tornado

On May 16th one of the deadliest tornados in St. Louis history ripped through the city and parts of the greater county. It took 5 lives, caused countless injuries, and left behind over $1B in property damage.

Luckily our building weathered the storm unscathed with the exception to a few minor exterior fixes. However, that wasn’t the case for much of the surrounding area.

The tornado left parts of the neighborhood looking post-apocalyptic. Hundred year-old trees were ripped from their roots and left blocking roadways. Homes and commercial shopping centers were leveled to the ground.

As you can imagine, trying to sell in this environment was an uphill battle. Local buyers were focused on rebuilding whatever they had left, and out-of-town investors were intimidated by how long it may take for the city to return to a sense of normalcy.

After months of low-ball offers and seller-financing proposals we finally received a decent LOI (Letter of Intent [To Purchase]). Albeit not as high as we’d hoped, it was strong enough to make the numbers work.

Insurance Options Disappeared

In the aftermath of the tornado, property insurance premiums went through the roof, and some carriers skipped town altogether.

Fortunately this didn’t affect our operations much, but it definitely hindered the sale. It was yet another underwriting component that gave many investors and prospective buyers pause.

If they could find a provider that would cover the building, the premium was often higher than anticipated.

Ultimately, we had to assist the group that bought our building with sourcing insurance coverage. But the difference between the cost of our in-place policy, compared to the premium that the new owners were quoted, was so large that it had to be factored into the sale price.

Being that the property was a small commercial apartment building, its value is derived from a Cap Rate. So the dent that the increased insurance cost made in the NOI (Net Operating Income), rolled over to our bottom line and negatively impacted our exit figures.

It wasn’t a massive hit, but every dollar counts.

Interest Rates Remained On A Roller Coaster

By now, most investors would have expected interest rates to have taken at least a slight dip. But they’re still sitting in 20-Year High territory.

To make matters worse, Jerome Powell continues to hint at a rate cut, but has yet to pull the trigger. This gives investors hope that lower debt service and higher yield is just around the corner. Leading most to sit on the sideline and try to wait out the current lending environment.

The dearth of active buyers meant no bidding wars or multiple offers to sift through. Instead, we had to actively market the asset to every reputable investor group and brokerage that could potentially bring us a decent purchase proposal.

After more than three months of sitting on the market, we finally settled on a price and terms that made sense for all sides.

Short-Term Debt Applied Pressure to Sale

Every other factor that affected this transaction was out of our control. But this was our own doing.

Ideally we’d leverage nothing but long-term debt with 10 - 30 year balloons (i.e. payback periods). But this deal was far from “ideal”.

As previously shared, it was only 30% occupied and needed over $100K in capex (capital expenditures). No banks or even hard-money lenders wanted to touch it. But we couldn’t make sense of passing on a deal that we knew would yield strong cash-flow, and potentially provide a large liquidity event once we refinanced or sold.

So we did what any savvy investor would do. We turned the seller into the bank and negotiated our own financing terms without the help of a 3rd party lender.

After a few rounds of negotiations, we locked in a solid purchase price and came to an agreement on a fair interest rate. But the one piece of the puzzle that didn’t fit was the balloon period.

The sellers wanted to be paid off in 12 months or less, and we were pushing for a payoff date of 36 months or more. We settled in the middle; conceding to a 18-month balloon with debt service being amortized over 30 years.

Our monthly payments were low. This allowed us to allocate substantial capital towards improvements and it set the stage for robust cash-flow.

But it also forced us to reposition the asset quickly. And while this was the objective—in the end—it limited our exit options.

Even after we completed all renovations and stabilized the building, because of its size and the relatively short hold period, it was tough to refinance into a long-term loan. The few term sheets we received were heavy on fees and not-so-pretty on the interest rate. This is what led us to selling the property. (And you’ve already been caught up to speed with the roadblocks we ran into throughout the sale cycle.)

In hindsight, I stand by our decision to acquire the asset. Despite the ups and downs, we still made it out on top. But if I could rewind the hands of time, I’d be unwaveringly firm on a 36 - 60 month payback period, or I’d raise additional funds so that we could buy the building outright without any debt in the capital stack. Either of which would have made it far easier to hit our desired return hurdle.

In summary, we won the war, but we took a few bruises in battle.

It goes without saying, I would have liked to squeeze a bit more juice out of this fruit.

But I’m not mad at the profit we returned to all of our investors that had a hand in the deal.

What’s your take on today’s topic? Do you agree, disagree, or is there something I missed?